RB40’s Exit Strategy Post Mortem

In March 2012, I shared my Exit Strategy from my corporate career and received quite a few interesting comments. Some readers thought that I wasn’t ready and some thought that it was a good plan. What I didn’t write was that I had already made up my mind to quit in 2012. I really needed to quit and take the next step in my life. I thought I’d try it out and see how it goes. If early retirement didn’t work out, I could always find another corporate job. Today we’ll do a post mortem on the exit strategy and see what went right and what went wrong since I left my corporate job in July, 2012.

Exit Strategy Recap

Here is a quick recap of my exit strategy. For the record, I will be 40 this year so I did quit before I turned 40.

up to age 40 – Work and build up net worth as much as we can and live a somewhat frugal lifestyle.

age 40 to 60’s – Execute my exit strategy and become a stay-at-home dad. I’ll explore part time self employment options and finds opportunities to generate some income. Mrs. RB40 will keep working for now. She likes her job and isn’t cut out to be a stay-at-home mom. She might explore other employment options if there is a good opportunity. Do not draw on retirement funds at this time. Putting off withdrawal is one of the keys to my exit strategy.

age 60’s to 100 – Both retire at some point and start to draw on nest egg.

Cash Flow Goals

Expense

Target – less than $4,000/month. In 2012, we were able to keep our expenses below $3,500/month on average. For 2013, our expense has been creeping up and it’s right around $4,000. This is under control for now. I was afraid preschool would blow this out of the water, but we got kicked out of preschool so we don’t have to worry about it until next year. (Another story….)

Income

Target - about $5,000/month. Let’s go over one thing at a time.

Mrs. RB40’s income target – $2,900/month after taxes and 401k contribution. She got a little raise, but she also has more deductions now. We increased her 401(k) and shifted 50% to Roth 401(k.) She also added us on her health insurance plan and increased her life insurance policy. I think this year she’ll bring home around $2,600/month.

Rental income target – $800/month. We didn’t do well at all with our rental income. For 2013, we are still near the breakeven point. I’ll give it a couple more years and see if this is something I should continue with. This was way below expectation.

Dividend and interest income – $550/month. I was able to beef up our online income a little and we should be around $650/month for 2013. Dividend income exceeded expectation.

P2P lending – $100/month. We are making about $75/month with P2P lending. It’s a bit below expectation, but it’s still much better than a saving account.

Online Income – $200/month. I kept my expectation very low because blogging could be an uncertain income even at the best of times. I put in a lot of work over the last 18 months though, and the online income has stabilized. I can count on at least $1,000/month and generally make more than that in a typical month. This is way above what I ever imagined. Let’s call it $1,200 for now.

Current Monthly Income

Mrs. RB40 – $2,600

Rental Income – $0

Dividend and interest – $650

P2P lending – $75

Online income – $1,200

Total – $4,525

My projection was $4,550/month so overall we are still pretty close to that.

Things didn’t go exactly as planned, but we are doing well overall. When you make a big move like quitting your job, you have to be flexible. If one thing doesn’t work out, then you gotta make do with something else. Have several backup plans if you can.

Backup Plans

We did fine with our cash flow so we didn’t have to mess with our backup plans. Let’s quickly go over them anyway.

Cut back retirement saving –If we needed more cash, we could have reduced Mrs. RB40’s 401k contribution. We didn’t have to do that and even increased her 401(k) contribution and took advantage of the Roth 401(k.)

Cash Savings – We can draw from our $50,000 savings account. Now that it’s been over a year, I’m going to invest most of this backup cash. We haven’t needed it and I would like to earn more than 1%. I plan to keep about $20,000 in our saving account for emergencies.

Part time work – I can take up part time work if we really need some cash. Right now, blogging is basically my part time work. I spend about 20 hours/week on it and that’s quite a lot of time for a stay at home dad.

Unforeseen circumstances

Quit or Get Laidoff – I quit because I couldn’t wait any longer. Recently, I heard from one of my old co-workers that the company offered a voluntary separation option about 8 months after I left. Doh! Perhaps I should have waited a bit longer and put Financial Samurai’s How to Engineer Your Layoffinto action. The book was released just a few days after I quit though. If Sam had sent me an advance copy, I might have been able to add another $100,00 to our dividend portfolio… That’s counting 8 months pay and the severance package. That severance package was only offered to a few people anyway and with my luck, I probably wouldn’t have gotten it. I’m not crying over it though, because I’m quite happy where I am today.

*note* I’ve seen 4-5 of these voluntary separation programs in the 16 years I spent there and I didn’t qualify for any for them in the past.

Mrs. RB40 – Some readers warned of this, but I didn’t believe them. Mrs. RB40 had always like working and I thought she’d happily do so until she’s 60. Lately, she has seen how happy we are without work and she is longing to spend more time with us. It’s going to be tough if she quits her job too, but it’s not impossible. We’ll work on Mrs. RB40’s exit strategy next, so come back next week to visit us.

Do you have an exit strategy? You really should make a plan so you can work toward making it a reality. Don’t wait until you’re 60 to plan.

Joe, I believe you did an excellent job in planning and ultimately executing to your plan. I recently did a similar exit with a voluntary layoff. My wife is also working with plans for her to retire early next year if she wishes. The biggest burden is healthcare cost. Right now we are healthy, but I’m sure the doctors will find something as we age. I must say that I feel somewhat guilty with pleasure as others schlep off ‘working for the man.’ I do keep very busy finishing work on my retirement house and other ‘honey-do’ tasks I’ve put off. But I also take time out to ride the motorcycle for small errands and ‘smell the flowers’ along the way. Your blog helped show me the way…for that I am grateful for all the insight you have shared.

This is great information and very interesting to me. Not including your online income, my passive income is VERY close to where yours landed. (Or at least where I anticipate where mine will be once I reallocate my real estate funds.)
We, however, don’t blend our income in this way and I look at it more as contributing my share of the bills via passive means. I’m reasonably close to that goal, but I also need my cushion money, which will either mean I go back to work for a year or two or we’ll downsize our home. (Or I could keep doing part-time work to make up the difference indefinitely.)
I’d love to tell you that you should have done another eight months to a year at your job, but I wouldn’t have made it eight more weeks at my job so I completely get it.

At the time, it felt like I couldn’t do it anymore. I’m happy with my decision and don’t regret quitting at all.
It would be tough to go back to work. Downsizing or relocating are great options. Are you still thinking about relocating to another country?

My exit strategy is simple – pay off all non-income producing debt (which is our primary home mortgage only now), don’t take on any more debt (no car loans etc), have the 60+ years saved for (SEP, 401K etc – getting close), use the money previously going to mortgage+retirement to build up taxable accounts with Vanguard index funds, then maybe start working part time while exploring other options for flexible work or start our own business (we have a couple of ideas). I am thinking this transitional period will be 10-15 years. I don’t want to stop working, but I do want to be FI enough to try a few different things for 15 or so years before we start slowing down as we get older.

A bit conservative, definitely and no, I don’t love my job or anything like that. Re-reading my post though I wanted to mention that the “60+ years saved for” means that we have enough money in our retirement plans to cover living expenses for when we turn 60 years old. Based on my spreadsheet – about a year more of SEP/401K contributions and we will be there!

It’s funny but as of right now I don’t have much of an exit strategy. Ala Underpants Gnomes, Stage 1 = Accumulate , Stage 2 = TBD, Stage 3 = Enjoy Early Retirement.

Our rough plan is pretty similar to yours, as my wife is still getting her PhD but she doesn’t plan on wanting to leave the workforce only a couple years into her career. So the plan is for her to work while I watch the future youngins. But maybe the career will lose its luster after a while. We should probably map out a couple scenarios that involve different career timelines for her as well. Thanks for this post: there’s a lot of good stuff to think about.

Joe, I like your exit strategy and the update. In the last couple of years (right before I retired) I had a document that I called “The Plan” which outlined current and future sources of income, recurring expenses, and lump sum expenses. Very similar in nature to what you have outlined.

As our assets kept increasing and our expenses remained relatively constant, the reality that we were on the verge of being financially independent set in (at age 33!).

In my “The Plan” document, I have back up plans listed like you do. If your expenses are relatively low, it doesn’t take much supplemental income to cover a large share of your living expenses. For example, this week I had an inquiry from an old contact that was offering sporadic part time work on an as needed basis. The pay wasn’t great, probably $15-20/hr with no benefits. But I figured out that if times got really bad I could do this type of work (that I have extensive experience in) and fund 1/3 our living expenses only working 10 hours per week.

I also like the part about Mrs RB40 starting to eye your stay at homeness and want some of that for herself. I think Mrs. RoG has been doing the same thing to my stay at homeness as well (and I haven’t even been retired 1 month yet!). I have been encouraging her to look into a few different options to give her more free time at home such as part time work and more telecommuting, or taking a sabbatical. Her company offers a 3 month mostly paid sabbatical, but she has never taken it because she works so hard.

Best of luck on your continued retirement / escape from the corporate world (who likes labels anyway?). Looks like you are on the right track.

It’s great that you could retire at 33. Your wife really should take the sabbatical. It’s good for her and the company.
You’re right about keeping cost low. Just a little work can cover a lot of the cost of living. We have to enjoy life while we can.

The cash flow numbers are all working out and that’s great. The key, though, is that you are much more happy, fulfilled, and stress-free nowadays. You can’t put a dollar value on that.

Also, I wouldn’t kick yourself about the “voluntary separation” option that your old employer offered not long after you left. How were you supposed to know? Plus, I’ll bet you’re right about it not being offered to you. My company did a similar thing last year. It was essentially an early retirement option. Your years of service + age had to add up to 65 (ie, if you were 45 and worked here for 20 years then you qualified). So, the pool of those who qualified was small.

Happiness is great, but it would be tough to be happy if we have negative cash flow every month.
You’re probably right about the voluntary separation option. I went through 4-5 of these and I never qualified before.

Good work Joe,
Not only did you execute a well thought out plan, but you’ve been nice enough to give the occasional update to us newbies. What you said about you, and presumably your whole family, being happier as a result of you being at home. That has certainly been the case in our household. My wife is thrilled, and more relaxed, now that I handle all the domestic activities. I am better able to structure my time so everything gets done AND I get to write and research our investments.

While it’s not great for all families, our family is better for having one of us work from home. I’m pleased to hear yours appears to be better off as well. I think if more families we flexible in this regard, our homes would be less chaotic and our marriages sturdier.

It is important to me that our net worth still grows when I quit work. If I thought we would be treading water financially I would likely suck it up and keep working for a while. But every way I look at our situation, it really makes no sense for me to keep working – oh yes, if my job was enjoyable and fulfilling blah, blah, blah I might consider it – instead I am streesed to the gills, and frequently throw up on the commute to work. I’ve had enough of this gig.

Now, quite simply it appears that without my employment income we should be able to save in excess of 4k per month.

So we should be able to save in excess of 4k most months – of course we will keep adding to the dividend portfolio, so this amount should increase nicely over time. The $2500 monthly budget may seem skimpy, but we own our house and car outright. No kids to factor in. Inexpensive outdoorsy type hobbies dominate our “fun time”. My wife is a bit leery about all this, but she says that if it is not going to downgrade our lifestyle (its pretty good, even on $2500) she will support me in this. What really excites her is that I am going to much more resemble the man she married. Sadly, because I am in management now, I bring the burdens of the job home with me at night. Not fair to her at all.

Our greatest future capital expense is that we need to build a cabin on some property near Vancouver Island. This will cost a fair bit, but I figure that since I will now have FREE TIME I can do much of the work myself, we can perhaps save 40% of the cost. Cannot wait for this new chapter in our lives.

I’m so sorry to hear about the stress. Hang it there just a little longer.
I kept a countdown in my head when I was in your situation.
1 more year, then 6 months, then 3 months, then it was time to go!
Keep working with your wife on this. I bet she will be a lot happier when she gets her man back.
Good luck!

You should really incorporate taxes and other expenses related to each category to get a truer picture of how each category affects your finances. For example, rental income at $800 a month may only be equivalent to your $650 of dividend income because of tax treatment, which argues for you to get rid of the rental property.

Nice breakdown of how you are managing after your exit. My wife and I are on-track to retire in 10 years. We could probably do it a little sooner, but we would need some alternative income. My wife has been making noises that she wants to “exit” work sooner than in 10 years. We shall see.

I don’t exactly have an exit plan, just trying to save as much as possible. I do have a pension after 30 years when I turn 56…I guess that’s relatively young in most people’s eyes but it’s not Retire40. That pension I have is a bit of a golden handcuff and living in NYC makes saving enough to retire is tough.

I was offered a voluntary severance package a few months ago. The payout was similar ballpark of what Joe mentioned his friend was offered. I didn’t want to quit then nor now though. Hopefully they’ll offer me one of those packages when I am ready to quit and not offer an involuntary one before I”m ready to go.

The corner stone of your plan is that you not touch the retirement funds this early in your life. What is happening to the growth of the retirement fund? Is it growing at such a rate that you will soon be able to live off the interest and dividends and not touch the principal?

The retirement funds are doing very well this year because the stock market did so well.
If it keeps growing at this rate, I’m sure we would be able to live off the dividend in 20 years.
I’m sure we’ll see some down years though.
I am adding to my retirement account this year.

Joe, I am mainly a lurker and admire you and Baby RB40 and Mrs. RB40 and the way you have styled your life. You have done what I (and MANY of my contemporaries) wish I could have had the courage to do. Awesome. My thought, which I hope you will find encouraging, is this: my wife and I have a great life on MUCH less than I thought possible. Once the housing is covered, we are spending $2,750/month. It doesn’t cost much to be content, and cover the basics.

I admire the way you dealt with a difficult job, difficult people and outcomes, and made a way to step out of the shadow of oppression and stress. Wish I could have had your courage to leave a job you were good at, were succeeding at, and seized all those years I sacrificed to fear and uncertainty. You have done an awesome thing, please never forget that!

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